The Ministry of Finance and the Office for Financial Market Innovation (SFI) of Liechtenstein partnered with The Tokenizer to create the “Security Token RegRadar Report” in order to create a knowledge-sharing platform for governments, enterprises and investors about the current status of STO-ecosystems in the different jurisdictions.
This initial Security Token RegRadar Report presents the results of a comparative analysis of the current regulatory environment of security tokens and the emerging security token industry across the following countries:
Other countries could have been included – and other countries will be included in future RegRadar reports – but these nine countries were chosen because they are all generally considered to be among the frontrunners within the blockchain and token economy.
The overall purpose of this report is to understand the current regulatory status – options and limitations – of security tokens and security token offerings (STOs) in these countries. And to get a sense of how friendly, knowledgeable and visionary the governments and the authorities of the countries actually are when it comes to security tokens and STOs.
The structure of this report follows the structure of the underlying questionnaire sent to the legal experts from the nine countries. It is divided into six main sections or areas, starting with the most basic questions about ‘the countries’ legal and political environment’ regarding security tokens – and crypto and blockchain in general.
Section two is about ‘the STO preparation process’, which again is divided into A: ‘Available information’, B: ‘Foundation of a company’, and C: ‘Compliance and regulatory procedure’. Section three covers ‘the security token issuance process’ divided into A: ‘The creation of tokens’, and B: ‘The public sale’. Section four is about investing covered by A: ‘Preparation of investments’ and B: ‘Prevention of fraud and technical failures. Finally, sections five and six cover the topics’ custody’ and ‘trading’.
Across all of the six sections, we have identified the following seven key findings at different levels:
Although the industry of security tokens is still relatively immature and the Security Token Offering (STO) concept still untested in most jurisdictions worldwide, there are already several progressive countries in which security tokens and STOs are accepted as a given fact and legally covered by national law.
This goes for all of the nine countries participating in this report. They all legally accept security tokens. They all allow for STOs to be conducted in their jurisdictions. And in all nine countries, it is even possible to run an STO without producing a full prospectus provided that the STO aims at raising less than a certain amount in total.
A majority of the countries amend existing laws and legal frameworks to include security tokens. So far, only a few of the countries participating in this report have decided to write new laws or create dedicated regulatory frameworks to legally encompass blockchain-based security tokens and/or crypto tokens in general.
Most of the European countries represented refer to security tokens as financial instruments regulated by the EU directive MiFID ll.
The respondents from all nine countries state that both the governments and the regulatory authorities have a relatively high degree of understanding of security tokens and the STO concept. On a scale of 1 to 5 (where 1 = ‘Not knowledgeable at all on the topic’, 5 = ‘Very knowledgeable’), the average score for governments in terms of knowledge is 3.9. For authorities, the average score on knowledge is 4.4.
None of the analysed countries has a hostile attitude towards security tokens. However, even among this group of assumed crypto progressive countries, the degree of friendliness towards crypto in general and the security token industry, in particular, differs relatively much. The most progressive countries have a sincere interest in and desire to be far-sighted and in front of the development, while the least progressive countries, more than anything, are interested in controlling what is going on in the crypto space and make sure that the new developments within the token economy industry do not represent a threat to the status quo and the reputation of the country – Malta is probably the best example of this.
On a scale from 1 to 5 (where 1 = ‘Unfriendly’, 5 = ‘Very friendly’), the average score for governments in terms of friendliness towards security tokens is 3.7. And for regulatory authorities, the average score on friendliness is 3.9.
When it comes to the more practical side of things in terms of finding relevant information and support, setting up a company, opening a bank account, conducting an STO, getting a prospectus approved by the local financial supervisory authority (FSA) and so on, all of this is possible in all of the participating countries. Nevertheless, the level of easiness, convenience, and cost differ significantly even within this group of apparent frontrunners. For instance:
While the governments of Austria, Singapore, Germany, Liechtenstein, Hong Kong and Canada offer a range of supporting services for companies, such services should not be expected in countries like Malta, UK or Switzerland.
While the authorities in Austria, Singapore, Malta, Liechtenstein, Hong Kong and Canada are ready for advisory support and personal meetings with companies to discuss the process of an STO, such services should not be expected in Germany and the UK.
While a foreign company can open a bank account within 8 hours in Austria and 14 days in Liechtenstein, the same task takes three months in Malta and probably longer in Hong Kong, if possible at all.
The possibilities for opening an STO for participation relatively easily also to investors from countries outside the country where the STO is carried out vary significantly among the countries in the study. Token issuers in European countries that are members of the EEA have the great advantage in this context that, provided that their national competent authority has approved their prospectus, they can quite easily passport prospectuses to all 31 EEA countries, thus inviting investors from all over EEA to participate. For countries outside the EEA, issuers must, for each new country, examine the regulatory situation and enter into dialogue with the national FSAs.
However, the number of STOs is still low in most countries, and it is clearly still early days in the security token industry, even in the most progressive countries. Nevertheless, it is, in fact, possible to find supporting jurisdictions around the world for companies who want to be an active part of the emerging security token industry or want to conduct an STO.